"The metaverse is the next evolution of social connection."1 It is a world where individuals will gather to work, play, game, exercise, educate, engage in commerce, interact with brands, and participate in yet unimagined categories. Some existing laws and regulations will have to be modified and new ones will likely have to be created to accommodate this new geographically boundless existence.
Or will they?
No one quite knows whether the potential of the metaverse will be fully realized or realized in anticipated ways. The technology remains to be built. Indeed, it is being built with heavy investment from massive tech firms committing to the principle of a metaverse and helping to propel it to.reality.
Generally, the metaverse has been described as a confluence of the numerous existing and future virtual worlds across multiple platforms as well as the real world. Virtual worlds already exist. Second Life, Animal Crossing, Roblox, and Fortnite are just some examples of virtual worlds using avatars for interaction in a digital space. These avatars are controlled by a user with traditional tools such as a mouse or keyboard. They can also be controlled using hardware such as headsets, making the experience more immersive or 3D. These virtual worlds can be a digital space fulfilling an objective, such as a game; alternatively, it can be a place to simply interact and share experiences, such as enjoying a virtual concert or sport event. Hardware is being developed that makes the virtual world more realistic, for example, by offering sensations of touch with a device that applies corresponding pressure on a user's fingers in response to the "touching" of virtual objects.2
The prevailing concept of the metaverse is one that incorporates virtual reality (VR), augmented reality (AR), mixed reality (MR) all to form extended reality (XR). In these realities, an individual acts whether IRL (in real life) or through an avatar. It can be a fully immersive experience as in VR, where the real world is left behind. It can also be an augmented experience by seeing certain virtual elements layered in real life. For example, current day phenomenon Pokémon Go employs location tracking to encourage users to travel in the real world with their phones to "catch" Pokémon, a character that appears on the phone screen. The layering of digital elements on live images such as in Snapchat for fashion is another example. In MR, real world and digital elements engage and interact to blur the lines between virtual and real worlds. Holograms are a notable example.
Unlike existing virtual worlds, the metaverse is intended to be all-encompassing. It would seem, then, that the metaverse will include these various VR, AR, and MR experiences but it would not be limited to the same. Excluding the ability to engage with the metaverse in a traditional way (such as by your phone or device) might run counter to the metaverse concept. Of course, no one really knows as it has not yet been built. Whichever way it may develop, as a universal experience that is more than a mere collection of existing virtual worlds, the metaverse is championed as the next generation of the Internet.3
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What is the difference between NFT, the Metaverse and Cryptocurrencies?
As the future generation of the internet, users through avatars or in real life can interact with each other and digital items in the metaverse. Non-fungible tokens (NFTs) represent digital and physical assets using blockchain technology to establish ownership. Each NFT is attached to a specific item, which can be art, music, a handbag, clothing, virtual land, a ticket for exclusive access, representations of collectible objects, or anything else. It can even relate to Jack Dorsey's first tweet that initially sold for $2.9 million.4
Similar to an artistic painting, pictures or copies of the item do not translate to ownership of the underlying piece or copyright in said work. For example, purchase of a book provides ownership of the book but not the copyright in the story. The NFT, then, provides proof of ownership of some pre-determined right. NFTs are moveable between virtual worlds, and are thus considered a metaverse asset.
Cryptocurrencies are digital currencies that can pay for the NFTs, virtual real estate, avatar clothing, accessories, food, drink, and any other item that can move in commerce. NFTs can enable transactions involving specific digital assets in the metaverse, and cryptocurrencies can enable the transfer of value in that transaction automatically, without the need for a central financial authority - hence, decentralized finance.
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What does this mean for brand owners?
With all these new ways of interacting with brands and engaging in commerce in a new medium, what does that mean for brand owners? Fortunately, the existing collection of virtual worlds, the experiences with the internet age and domain names, social media, and familiarity with the reality of trademark licensing in connection with product placement in television, movies or electronic games, can help guide how real-life goods or virtual goods are - and will be - branded and marketed for sale in the metaverse. They can also help guide how to react to potential trademark and copyright violations in the metaverse; finally, they can offer ideas on what potential mechanisms of enforcement exist under the current legal framework. Of course, this is all assuming that the metaverse will be legally approached with a connection to the real world, and not as a stand alone virtual parallel world, with virtual jurisdictions, and necessitating the acquisition of rights and goodwill in the virtual world, or even a parallel world with its own sets of rules and laws.
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The Metaverse as an economy
Viewed through the lens that the metaverse can be a marketplace for both virtual and physical goods, some brands have already begun exploring how to engage with consumers in a potentially new revenue stream. Goods can be marketed and sold on existing platforms such as Roblox, Dencentraland, Sandbox and others. Indeed, brand owners have already done so. Nissan and IBM acquired "land" on the virtual platform Second Life, a platform initially released almost two decades ago in 2003 that enables interaction via avatars. Giorgio Armani and American Apparel offered virtual clothing. Toyota offered virtual cars, Adidas and Reebok sold sneakers, and 1-800-Flowers had a virtual greenhouse.
More recently, limited edition digital versions of goods have proved lucrative. Gucci, through its collaboration with Roblox, gave players the opportunity to win a digital version of its Gucci Dionysis bag. It was not an NFT and its use was limited to Roblox. At one point in 2021, it resold for 350,000 Robux (not a cryptocurrency) or around $4115 USD. The physical version of the bag retails for less, around $3400 USD.
The ability to curate a virtual environment to showcase limited edition or iconic pieces also offers an opportunity to explore creativity and reach an entirely new audience. Gucci unveiled a virtual Gucci Garden space on Roblox for two weeks while concurrently opening its doors to a physical space with an "immersive multimedia experience" that "celebrates the house's inimitable creative vision."5 Nike, Vans, and Ralph Lauren have also created Roblox experiences, offering the ability to purchase digital clothing and accessories.6
Deepening its engagement with the metaverse, Nike in December 2021 acquired RTKFT, a startup that creates "metaverse-ready sneakers and collectibles."7 Nike has stated its intention to invest in the brand and "extend Nike's digital footprint and capabilities."8 Adidas also in December 2021 revealed an NFT project with Bored Ape Yacht Club as part of its metaverse strategy.9,10 This includes selling its NFT collection and selling corresponding products in the real world when purchased by forging or trading in the NFT.11
In addition to products that exist only in the virtual realm, the metaverse can also facilitate the sale of physical goods. Virtual stores built on virtual land can house virtual goods for virtual testing, for which a correlating physical good can be purchased and delivered to a physical address. Recently, Balenciaga's collaboration with Fortnite yielded in-game skins (virtual clothing) alongside limited-edition Fortnite clothing on the Balenciaga website available for purchase.12 Even in the last few years, cosmetics brands such as MAC have allowed for virtual try-on of lip colour using a phone's camera, an augmented reality experience designed to facilitate at-home shopping - a particularly important feature during the lock-down pandemic era. Viewed in this way, the metaverse gives consumers the opportunity to engage in a new kind of commerce.
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Reacting to potential violations in the metaverse
Just as brand owners can potentially enhance their brand equity through deliberative actions in the metaverse, opportunities for potential counterfeits and violations also exist. Indeed, as shown in Second Life, virtual counterfeits of Rolex watches, Cartier jewellery, and Nike shoes existed at least as early as 2010. Nike has since embraced a metaverse strategy by filing for several trademarks directed to the virtual world and purchasing RTKFT.
What happens then, when, as the metaverse expands, obvious sales of branded goods are made by third parties?
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Potential mechanisms of enforcement under current Canadian law
Jurisdictional issues
Trademark enforcement with respect to the metaverse raises some questions and uncertainties, one of which is the determination of jurisdiction. Notably, akin to the yet to be realized metaverse, the internet, too, is geographically boundless. It offers a digital dimension across entire continents and is accessible on various devices with some elements of digital layering in reality already occurring. It may, then, be useful to view how courts have grappled with trademarks on the internet.
Infringement of digital goods in the metaverse
Assuming that a brand owner has registered its mark and that metaverse users are based in Canada, a straightforward infringement action could apply to the metaverse similar to its application on the internet. Certain brands have embraced the metaverse and filed trademark applications for digital goods. They have also begun using their marks in the digital world, such as in existing virtual worlds or for NFTs. In the case of an unauthorized use of a confusingly similar mark in association with digital goods or counterfeited goods, trademark infringement could form the basis to enforce registered rights where the mark owner owns a Canadian trademark registration covering the same. Owning a trademark registration covering relevant digital goods and services (for goods, under the current Nice Classification, the probable most relevant class would be class 9 and the sale of these goods in class 35) for application in the virtual world will likely constitute a useful strategy to facilitate enforcement actions relating to trademark violations in a metaverse context.
For example, if a brand owner has a Canadian trademark registration for digital clothing or accessories that may form the "skin" of an avatar, and indeed, offers these for sale in the metaverse to Canada based users, then it is conceivable that it could enforce against those counterfeit goods similar to enforcement online. The essence of a trademark infringement action in the metaverse would be the same as that in the real or online world, namely, "likelihood of confusion," and trademark use in relation to Canada-based metaverse users. Fundamentally, a trademark provides the owner of a mark with the exclusive use of the registered trademark. Infringement can occur when an unauthorized person sells, distributes, or advertises any goods or services in association with a confusing trademark or trade name.13
An avatar having digital shoes branded a certain way that could be confusing with digital shoes as registered by a mark owner, could be subject to a cease and desist or enforcement action for direct infringement.
Infringement of real life goods in the metaverse
In another variation, real life goods may be available for purchase on the metaverse, similar to their availability for purchase on the internet. While the metaverse may offer some exciting options to digitally "try on" clothing or make-up or examine products in a VR, AR, MR environment, the ultimate product being purchased would be a real life product. As a registered trademark owner's rights to a mark's exclusive use is deemed infringed by unauthorized selling, distributing, or advertising goods in association with a confusing trademark or trade name, a cause of action in this regard may continue to exist in the metaverse. For example, in a Federal Court case ultimately finding infringement, dilution, and passing off among other violations for a number of differently branded luxury goods, the defendants conducted business out of three physical locations as well as two websites and through a social media platform.14 The social media platform, in particular, was WeChat, which among its purposes serves to facilitate the offer for sale and sale of merchandise. The court spent a significant amount of time discussing the WeChat profile and its connection to the counterfeiting party.15 Counterfeiting, infringement and others can be enforced on the internet.
Even where anonymity or jurisdictional issues may make enforcement difficult, search engines and other platforms can be enjoined. For example, in Google Inc. v. Equustek Solutions Inc.,16 the defendant distributor was ordered to cease carrying on business on the internet upon repeatedly selling products that belonged to the plaintiff and were relabeled to pass off as belonging to the defendant. The Supreme Court upheld an order against Google to de-index the websites of a distributor on a global basis. Although not trademark infringement, the Supreme Court decision shows that the internet can be policed.
Passing off
Where a mark owner uses its mark in association with goods and services in the real world, it may be able to assert passing off to object to unauthorized trademark uses in the metaverse, similar to an unauthorized use in an online game world, film, or video.
If a brand owner finds its mark being used in the metaverse without authorization, passing off may be a potential basis of enforcement, assuming that its mark benefits from a certain reputation in Canada and that Canada-based metaverse users have been exposed to the unauthorized use.
The risk of trademark enforcement action routinely leads film makers and game-makers to seek licenses before placing products in their movies or games. Brands have been known to pay millions for product placement. The collaboration between Aston Martin cars and the James Bond movie franchise comes to mind.17 Heineken paid $45 million for placement in the James Bond film Skyfall.18 Harley-Davidson paid $10 million to have its then forthcoming electric bike featured in Marvel's Avenger: Age of Ultron.19 Product placement is so ubiquitous that placement of a product in a movie or a video game may give the impression of affiliation or sponsorship, depending on the context of the use. Parameters of the product's placement also carefully set the allowed uses of the product. In video games, Ford as one of many car-makers, for example, has placed limits on how the car is used, including excessive burning, failure to show air bag deployment and other limitations in return for showing its cars.20
Comparable to enforcement in the film-making or gaming industries, trademark enforcement may follow in the metaverse. To succeed in a passing off action in Canada, a plaintiff must establish three necessary components, namely that it has goodwill, that the defendant engages in a misrepresentation, and actual or potential damages.21
Even where a mark is not identical, or used in parody, a passing off action may be successful. In a recent federal court case, Budway, Cannabis & Wellness Store ("Budway") was enjoined from using its trademark or trade name BUDWAY that was an obvious parody of the well known SUBWAY brand for sandwich restaurants.22 In this case, the goods were different and the marks were different, but a passing off action was successful. The existence of goodwill was "reinforced by the respondents' conduct in taking advantage of that goodwill and reputation by copying the logo.." The misrepresentation to the public occurred due to respondents' adoption of a confusingly similar mark - it was successful in its confusion analysis. Finally, the damage to Subway was established by its loss of control over its marks as well as consequent harm to its goodwill and reputation. Comparably, in the metaverse, where the three necessary components can be established, success in a passing off action may be possible.
Dilution or depreciation of goodwill
In cases where an infringement claim and a passing off claim fail, a dilution claim under section 22 of the Trademarks Act could offer another possible option, assuming that the brand owner has a Canadian registration and that the unauthorized use is in relation to Canada-based metaverse users. In order to have a successful dilution or depreciation of goodwill claim, the following elements must be shown: (1) use (note that for goods, the mark must be associated with the goods at time of transfer); (2) goodwill; (3) linkage; and (4) damage.
[D]epreciation can come about not only through disparagement, but also the reduction of distinctiveness resulting from a mark being "bandied about by different users," through a blurring of brand image, or from a "whittling away" of the brand's power to distinguish the owner's goods or services.23
The use of the mark does not have to be competitive with those of the mark owner's. The goodwill attached to the mark can come from the mark being sufficiently well-known, although fame is not required. However, goodwill cannot be depreciated if it does not exist. The linkage indicates that the brand owner's mark is used in a way likely to have an effect on that goodwill. Finally, damage is established by showing that the likely effect of that use is to depreciate the goodwill.24
In Toys "R" Us (Canada) Ltd. v. Herbs "R" Us Wellness Society25, the court found no infringement by the similarly stylized HERBS R US and no passing off. However, the court did find a depreciation of goodwill.
In United Airlines, Inc. v. Jeremy Cooperstock26, Defendant was found to have "used" United Airline's trademark in a confusing and depreciating way by creating a complaints website that strongly resembled the official website of United Airlines including the use of a similar but not identical, globe logo used by United Airlines. The services offered by the website of providing information were considered sufficient. The use of UNTIED was considered use as it was displayed similarly to UNITED. Aside from actual confusion, and passing off, the court also found depreciation of goodwill based partly by the reconfiguring of the globe logo to include a "frown" as well as due to a loss of distinctiveness given the similarities between the marks.
Importantly, as indicated in the case law, the use of the mark does not have to be competitive with those of a mark owner's in order to assert depreciation of goodwill. Even though textiles are not directly competitive with avatar skins, if the brand's value is somehow depreciated, a claim could be made.
Cases to watch
While case law with respect to virtual worlds is relatively sparse, Hermès earlier this year filed suit in New York against Rothschild, creator of NFTs branded METABIRKINS. The NFTs feature generally blurry images of the iconic Birkin bag stylized with apparently furry exteriors. Hermès has taken exception to the reference to its iconic BIRKIN bags with the NFT simply "[ripping] off Hermès famous BIRKIN trademark by adding the generic prefix 'meta' to the famous trademark BIRKIN". It has further argued that the NFTs are blurry images of the "trade dress of the famous BIRKIN handbag".
Going to the heart of trademark law, Hermes argues that the success of the METABIRKINS branded NFTs is confusing as to the source, leading the public to believe that METABIRKINS NFTs originate from Hermes or are otherwise authorized by Hermès. It asserts that the branded NFTs are dilutive to Hermes famous trademarks and unless stopped, "ultimately preempt [sic] Hermès' ability to offer products and services in virtual marketplaces that are uniquely associated with Hermès and meet Hermès' quality standards." Direct trademark infringement, false designation of origin, trademark dilution, cybersquatting, common law trademark infringement, and violations of other local business and unfair competition laws are among the causes of action asserted. While a cease and desist was sufficient to stop the NFT platform OpenSea from listing the NFTs, the NFTs continued to be sold through other channels. The outcome of the case remains to be seen, but the filing itself is highly instructive. The causes of action present in real life, continue to be relevant in virtual worlds or the future metaverse.
The future
Undoubtedly, as the metaverse is modeled and created, new specific issues will arise that may require creativity. The basic principles of property protection do not disappear with the integration of digital elements into the real world or with the creation of entirely virtual worlds. Of course, no one knows if the metaverse will even come into existence, or the scale of its existence, or how indeed it will present itself. From a brand owner's perspective, the metaverse offers a compelling opportunity to engage with consumers in a new manner. Akin to the way the internet did not remove geographic boundaries to the point of enabling rampant infringement and inapplication of local laws, the metaverse, however it is realized, may have users in a particular jurisdiction and virtual worlds operators in the same or another jurisdiction. The concept of policing on the internet is not novel. Several similar enforcement strategies can be considered.
As illicit activity occurs on online marketplaces, brand owners often work with reputable online marketplaces to stop counterfeit activity. If the metaverse is at least a partial collection of interoperable virtual worlds, those reputable virtual worlds operators may have the same incentives to avoid potential liability for contributory infringement and to maintain their reputation.
Alternatively, cooperating with Payment Service Providers (PSP) may provide another solution for enforcement that viable on the internet, can also be viable in the metaverse. More thought needs to be given to payment made via cryptocurrency from a digital wallet or NFTs, which depending on how used, can be difficult to trace.27
Perhaps the anonymity available in the metaverse is more akin to the anonymity afforded to social media. Targeted advertising on social media can lead to websites selling counterfeit products that at first glance appear to be authentic and legitimate. The terms of service or user agreements might form the basis of reporting such counterfeit activity. Disabling access through one channel or each or multiple channels may be possible.
Other solutions include enforcement of terms of service or other policies such as those found in search engine advertising. We also note that in the internet context, it is possible to obtain the identity and contact information of a domain name registrant from its domain name registrar. The metaverse, notably, has not yet been built. As a concept under construction, it may be an opportunity to create protocols for ultimate identification.
Different tech giants have found ways of cooperating with local laws when providing their web services in that local jurisdiction. Trademark protection and the policing of marks has continued with the sale of counterfeit goods being subject to enforcement actions, regardless of the jurisdictional issues and borderless nature of the internet. The metaverse, and virtual worlds surely, with all their promise, can do the same.
Footnotes
1. https://about.facebook.com/meta/
3. https://uigstudio.com/insights/metaverse-vs-vr-differences-future
4. It has most recently struggled to resell. NFTs sales continue to rise with the artist Beeple selling an NFT for $69 million through a first-ever action at Christie's. https://www.theverge.com/2021/3/11/22325054/beeple-christies-nft-sale-cost-everydays-69-million.
5. https://blog.roblox.com/2021/05/gucci-garden-experience/
7. https://www.dezeen.com/2021/12/15/rtfkt-nike-acquisition/#
8. https://news.nike.com/news/nike-acquires-rtfkt
9. https://www.voguebusiness.com/technology/adidas-reveals-new-nft-project-with-bored-ape-yacht-club
10. https://decrypt.co/87467/adidas-metaverse-bored-ape-yacht-club-ethereum-nft
11. https://www.complex.com/sneakers/bored-ape-yacht-club-adidas-nft-hoodie-tracksuit
13. Section 20(1) of the Trademarks Act
14. Louis Vuitton Malletier S.A. v. Wang, 2019 FC 1389.
15. See supra 15 at para 94.
16. See Google v. Equustek Solutions Inc., https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/16701/index.do (defendant distributor was ordered to cease carrying on business on the internet upon repeatedly selling products that belonged to plaintiff and were relabeled to pass off as belonging to defendant; order against Google to de-index websites of distributor was upheld, showing that internet can be policed).
18. https://www.bosshunting.com.au/entertainment/movies/product-placement-movies/
19. https://www.bosshunting.com.au/entertainment/movies/product-placement-movies/
21. Ciba-Geigy Canada Ltd v Apotex Inc, [1992] 3 SCR 120 at para 33.
22. Subway IP LLC v. Budway, Cannabis & Wellness Store, 2021 FC 583
23. Bean Box, Inc. v. Roasted Bean Box Inc., 2022 FC 499 (CanLII), https://canlii.ca/t/jnm4q at para 67 quoting Toys "R" Us (Canada) Ltd. v Herbs "R" Us Wellness Society, 2020 FC 682 at paragraphs 60 to 63; [Veuve Clicquot Ponsardin v Boutiques Cliquot Ltee, 2006 SCC 23 at paragraphs 63 to 64
24. Veuve Clicquot Ponsardin v Boutiques Cliquot Ltee, 2006 SCC 23 at para 46.
25. Toys "R" Us (Canada) Ltd. v. Herbs "R" Us Wellness Society, 2020 FC 682 (CanLII), https://canlii.ca/t/j8866
26. United Airlines, Inc. v. Jeremy Cooperstock, 2017 FC 616
27.
https://bitcoin.org/en/protect-your-privacy
#:~:text=Understanding%20Bitcoin%20traceability
&text=All%20Bitcoin%20transactions%20are%20public,and%20where%20they%20are%20sent
(providing that Bitcoin transactions are traceable, but offering
options for privacy).
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